The US accounting regulator is stepping up its inspections of foreign audit firms this year as it seeks to minimise political and legal controversy caused by the work.
The Washington-based Public Company Accounting Oversight Board (PCAOB) completed its first inspections of foreign audit firms during 2005, in Canada, Chile, Israel and the UK.
The PCAOB did 16 inspections of foreign firms last year and is considering sending its staff to countries in continental Europe and Asia this year. "We expect to inspect more non-US firms in 2006," said the PCAOB.
The UK businesses of the big four accounting firms -- Deloitte, Ernst & Young, KPMG and PwC -- are bracing themselves for inspections after the PCAOB held talks last month with the Financial Reporting Council (FRC), the British accounting regulator.
The prospect is unnerving some UK accountants because they could be criticised if poor audit work is found. The inspections are controversial because they can involve PCAOB staff going to foreign firms' offices to scrutinise audit documents and to interview accountants.
The PCAOB was created by the 2002 Sarbanes-Oxley Act after accounting scandals at Enron and WorldCom, and it must produce reports every year about foreign audit firms that have more than 100 audit clients with US stock market listings. It must do reports every three years on those with less than 100 audit clients with US listings.
David Scott, chief executive of the Canadian Public Accountability Board (CPAB), which regulates auditors, said it had conducted joint inspections of some Canadian accounting firms with the PCAOB.
He said the CPAB and PCAOB; staff had picked their own samples of the firms' audit engagements to review. "It has worked very well," he said.
Philippe Steing, secretary general of the Haut Conseil du Commissariat aux Comptes, the French accounting regulator, said he was in talks with the PCAOB about allowing each watchdog to do inspections on the other's behalf.
The PCAOB said it was working with its counterparts outside the US to ensure the foreign inspections "are carried out within both the spirit and letter of the Sarbanes-Oxley Act".
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